How to create SaaS product growth?

Slack's paid conversion rate is as high as 30%. In less than five years, its valuation has exceeded US$7 billion, making it the fastest-growing SaaS product in history. This article explains how Slack built its growth engine.

On June 20 this year, the American unicorn company Slack went public directly on the New York Stock Exchange, becoming the second technology company after Spotify to go public directly, bypassing the traditional IPO method.

On the day of listing, the stock price soared by 50%, and the market value once exceeded US$23 billion. As an enterprise collaboration application, Slack has entered the Silicon Valley "Hall of Fame" and become the fastest growing SaaS product in history.

Since its launch in February 2014, Slack’s achievements include:

• The number of daily active users (DAU) exceeds 10 million;
• The freemium model has a 30% conversion rate to paid users.
• 43% of Fortune 100 companies pay to use Slack;
• It took less than 5 years for the valuation to go from 0 to 7 billion US dollars;
• …

Slack active user DAU growth curve

A stone from another mountain can be used to polish a jade. Slack's growth path is very worthy of our review and study.

This article will start from three aspects: traffic acquisition, customer success, and growth engine to interpret the secret of Slack's growth.

1. Traffic acquisition: focus on word-of-mouth marketing

Slack has done a great job in word-of-mouth marketing and brand building, which has brought a steady stream of organic traffic to their website.

The Slack website has more than 100 million visitors per month, with the majority of traffic coming from direct visits. That means that out of the more than 100 million visitors per month, 90% go directly to the Slack website. To put it in a more vivid way, since many people know Slack, they will type Slack.com in their browser to directly visit the official website.

The above picture shows the keywords that bring the most traffic to Slack. You will find that the top keywords (groups) include the keyword "slack". In addition to brand words, some product words (such as team communication, instant messaging, etc.) also bring them a lot of traffic.

Slack's excellent word-of-mouth marketing, including social media marketing, content marketing, product marketing, etc., has won it a high brand awareness.

1. Social Media Marketing

The bar chart below shows the distribution of channels through which Slack obtains traffic on different social media.

Slack gets more than 800,000 visitors per month from social media channels, including Facebook, YouTube, Twitter, Reddit, LinkedIn, etc.

Slack has developed different operation strategies for each social media, such as:

• Facebook: Update fans on their status through articles, podcasts, events, etc.
• YouTube: Acquire users through professional product videos and call-to-action buttons.
• Twitter: Drive viral word-of-mouth marketing by providing 24-hour online support to users on Twitter.

Slack tells us that social media is not just a platform you use to gain traffic, but also a platform you use to connect with users, interact and communicate, and make your brand easier to remember.

2. Content Marketing

In addition to social media, Slack also actively expands its brand influence and awareness through content marketing through blogging, writing articles, sponsorship and original podcasts.

SlackHQ is a column blog opened by Slack on the content platform Medium (similar to China's Jianshu and Zhihu). This channel brings 70,000+ interested new visitors to Slack's official website every month.

Slack mainly publishes four types of content on Medium: the latest company and product news, Slack product usage guides, practical workplace work skills, and interesting personal stories. These four types of content are a perfect combination, which not only conforms to the product positioning but also attracts users to read.

Slack has also invested heavily in podcasting, sponsoring many podcasts before setting up its own podcast account.

Compared with quantity, Slack pays more attention to results and focuses on sponsoring podcasts that are very well-known in vertical segments. For example, Slack sponsors Startup (a podcast about startups), Reply All (a podcast about the internet), and 99% Invisible (a podcast about design).

Slack will compile and edit the conversation content of each podcast into an article, and then publish it on content platforms such as Medium to gain secondary exposure. Each article will provide the complete podcast audio and use a brief text to remind readers of the existence of the podcast column, thereby cross-distributing traffic.

3. Search Engine Optimization

In addition to social media and content, Slack also gets a lot of organic traffic from SEO, most of which comes from Slack’s App Directory landing page.

The picture above shows the search terms with the highest search volume and top ranking on Google. Obviously, users who search for these words are not specifically searching for Slack, but Slack's page can still appear in the results. Why? It’s actually very simple. The products behind these keywords are all integrated with Slack.

Slack has created a separate landing page for each product that has been integrated with it (a small number of which are created by partners). Each similar landing page follows the same content module and layout design to introduce how this product is integrated with Slack and works efficiently.

When users search for these keywords, Slack ensures that its page is ranked on the first page of search results and then directs traffic to its own website.

2. Customer Success: The Core Driving Force of Growth

Each channel has its own life cycle and will gradually become ineffective over time. However, user word-of-mouth recommendations will not. If you can get people to consistently recommend your product to their friends and colleagues, then you’re truly on the path to growth.

The book "From Impossible To Inevitable" mentions that customer success is the core driving force of growth and its value is 5 times more important than new sales. Slack incorporates this concept into every detail of its products, services and even pricing.

1. North Star Indicator

Sam Altman of Y Combinator has a mantra:

Customer love is all you need, a hundred people who love your product are better than a million who love it.

Slack has adopted this concept and uses the user net promoter score (NPS) as an important indicator to measure the value of the product. Specifically:

• Getting started: Quick and hassle-free, you can start using Slack in just three clicks;
• Fair pricing: If you stop using Slack, they’ll give you a refund (yes, we’ll get into that later)
• Customer Success: Every new employee goes through a nine-week training process so they can acclimate to the company culture and learn how to communicate in Slack.
• Content dissemination: Dare to be different, but never exceed the actual product functions and service experience.

CEO Butterfield has made “sending 2,000 messages” the North Star metric for Slack’s product.

For team collaboration products like Slack, it takes a certain amount of time for users to understand its potential value. If a user sends more than 2,000 messages on Slack, we can be sure that the user has begun to officially use and rely on Slack.

2000 messages, what does this mean?

For a team of about 10 people, this is almost a week's worth of messages; for a team of dozens of people, this probably means 10 hours of messages. Once a team has sent more than 2,000 messages on Slack, retention rates increase dramatically, to 93%.

2. Fair Price Policy

The typical pricing standard for enterprise software is that it is charged upfront based on the number of users, regardless of how many people on a team are using it.

For example, if you purchase 1,000 copies but use only 100 copies, the software company will still charge you for 1,000 copies.

The biggest highlight of Slack is its unique “Fail Billing Policy”. Specifically, if a user stops using Slack for 14 days, he will receive a corresponding refund from Slack.

This charging strategy is precisely an important reason why users fall in love with Slack, and user love is necessary for word-of-mouth marketing growth.

In addition, this charging method serves as a warning to Slack's sales staff: it is absolutely not enough to just win one customer. Only when the product is fully integrated into the customer's daily work will they pay further for use.

3. Growth Engine: Up to 30% Paid Conversion

Slack has a 30% conversion rate from free trial to paid, which is an extremely high rate. You should know that the paid conversion rate of Evernote and Dropbox is only about 4%.

So, how does Slack continue to attract new users and achieve such a high payment conversion rate? Below, we will explore this from two perspectives: the “free value-added model” and the “growth matching model”.

1. Freemium Model

Slack uses a freemium model. Here are Slack’s pricing plans:

You can use the free version of the product for free, but you have to pay to use the more powerful standard and enhanced versions.

If you compare carefully, you will find that the free version of Slack provides a lot of functions, which can basically meet the needs of daily work. So, how does Slack convert free users into paying users?

Slack has two very prominent features:

1. Very smooth product onboarding process;
2. Guide users to pay through productization.

Let’s talk about the first point first, the getting started guide.

As a team collaboration product, Slack not only has to conquer individual users, but also convince the entire team at the same time. Therefore, the most effective way is to provide a super simple and super smooth product onboarding experience to help users and teams quickly use and make good use of Slack.

This is Slack's product interface. All new users will see a product introduction guide after completing registration. Slack also offers a very robust help center, including product tutorial videos. The content is very clearly structured, letting new users know what to do next and ensuring that users are 100% able to use Slack.

Let’s talk about the second point. Slack does not force the paid version of the product to users. Paid conversion is more achieved through productization. Although the free version has more functions, it also has some limitations:

• Only 10,000 messages can be sent for free;
• Only 5 GB of articles can be stored for free;
• Only 10 other apps can be integrated for free.

Earlier we mentioned that Slack uses "sending 2,000 messages" as its North Star indicator. Once a customer team sends 10,000 messages, it means that the team can no longer do without Slack and Slack has become a part of daily business. At this time, paying is a natural thing.

This approach will not only allow Slack to continue to provide better products and services, but also allow paying users to remain active and gain value.

2. Growth Matching Model

Having a good product is a necessary but not sufficient condition for growth. Brian Balfour, former vice president of growth at HubSpot, summarized a growth matching model. Only when the four elements (product + market + channel + pricing model) match each other can sustained and stable growth be achieved.

1) Market/Product Fit

We should consider market demand first, and then the product.

There have been a lot of hot topics and discussions about AR/VR/blockchain, which sound very exciting; but up to now, there is still no mature and practical solution. The reason is simple, it’s because they don’t solve any pain points in the market.

The Slack team’s value proposition is very clear: Email Killer allows everyone to quickly communicate and obtain information, reduce team communication costs, and improve communication efficiency (Be less busy), and they have indeed achieved it.

2) Product/Channel Fit

It is difficult for many entrepreneurs to understand that products and channels need to match. In reality, products are products and channels are channels, and the two are often isolated. What we can do is to shape the product into one of the channels as much as possible and connect the two seamlessly.

Slack managed to spread word of mouth across all channels, which ultimately reflected in direct traffic. This is just as we mentioned earlier, most of Slack's website traffic comes from direct visits.

3) Pricing Model/Channel Fit

How do we charge users? What is the average annual revenue per user (ARPU)? What is our customer acquisition cost (CAC)? Under different business structures, how should we choose the channel with the highest ROI?

The above coordinate axis shows companies with different average order value/customer acquisition costs and their corresponding customer acquisition channels.

On the left are small customers, focusing on volume; on the right are large customers, focusing on enterprise-level sales. The red area in the middle of the coordinate axis is called the "Danger Zone". It doesn't mean that it is impossible to succeed in this area, but it is more difficult to succeed in comparison.

The founding team positioned Slack as a product that could grow virally. The freemium model allowed Slack to quickly acquire a large number of users, so their channel focused on search.

To sum up, Slack is closer to the left side of the axis.

4) Market/Model Fit

Christoph Janz from Point Nine Capital summarized a price matrix with the number of customers on the horizontal axis and the average annual revenue per user (ARPU) on the vertical axis. The number of customers x ARPU is the annual revenue of the company, and different products are named after animals.

Slack positions itself on the rabbit hole, with customers being small (2-20 people) to medium-sized (up to 150 people) teams. Because Slack acquired customers quickly, in large numbers, and at a reasonably low price, it achieved a record of generating $1 million in new revenue every 11 days in the first year of its launch.

Now that we have introduced the four matches, let’s put them together. These four factors match and drive each other, resulting in Slack's valuation exceeding US$7 billion in less than five years. Its highest market value after listing reached US$23 billion.

IV. Conclusion

Not long ago, on September 4, Slack announced its financial results for the second quarter of fiscal year 2020: the cumulative number of paying customers exceeded 100,000, a year-on-year increase of 37%; total revenue was US$145 million, a year-on-year increase of 58%.

Slack's explosive growth has given the enterprise service sector more room for imagination, attracting more and more entrepreneurs and investments.

While growing rapidly, Slack is also facing increasingly fierce market challenges. The road to sustained growth is long and arduous! As the fastest growing SaaS company in history, can Slack continue to grow?

These are all issues that need to be considered.

Author: GrowingIO

Source: GrowingIO